Thursday, June 21, 2012

A visible slowdown in global economic activity

The global slowdown is becoming quite visible among the major economies. The US is still growing, but the latest PMI measure for June came in at 52.9, down from 54 last month. Germany's PMI came in below 50 (indicating contraction), with manufacturing PMI below 45.

Source: Markit Partners

The last time German manufacturing PMI was this low was in mid 2009.

Germany manufacturing PMI (Markit/Bloomberg)

And China's PMI is now materially below 50 with a troubling downward trend.

China PMI (source: HSBC)

In an addict-style behavior, market participants are hoping these declining PMI numbers will invite additional government stimulus - on top of what has already been put in place.

WSJ: - The HSBC initial, or "flash," measure of manufacturing also foreshadowed weakness in the months ahead as its barometer of new manufacturing orders, particularly export orders, showed further declines amid a lingering global economic slowdown.

China has already turned to an array of measures to boost growth, speeding up approvals on big projects, offering tax breaks and extending subsidies to promote consumer spending. A big unanswered question is whether the plethora of actions in the past month or so will be sufficient to boost growth during the second half of the year. If so, it could help strengthen global demand at a time when Europe is in recession and the U.S. is growing slowly.

But at this stage stimulus will likely have temporary and limited effects on growth. Unfortunately all the uncertainties around the Eurozone's future will cap investment levels and limit new orders. And given how long it may take to remove that uncertainty, we may be looking at years of slow growth globally.